Real Estate and Estate Planning in the Phoenix Valley, Part 1
Only two things are certain, as they say: death and taxes. If you’re a real estate investor, you probably already plan for the certainty of paying taxes on your rental properties. But do you have a plan in place, should something happen to you? Phelps LaClair, located in Phoenix, Gilbert, and Mesa, AZ, strongly encourages rental property owners and other real estate investors to plan for the unexpected. Put a plan in place for your loved ones in case you’re no longer around to manage your investment portfolio and your rental properties. If you’re incapacitated, will your loved ones continue to be financially stable? Will the courts need to decide who gets what, or do you have an estate plan in place that has your beneficiaries covered? Let’s look at some some things to consider regarding real estate and estate planning in the Phoenix Valley.
Assets and Beneficiaries
Real estate, including rental property, is probably one of your biggest assets. For that reason, it’s essential to put in writing who will own it after you’ve passed away. If you have a co-owner such as a spouse, the title to the property can be set up to automatically pass to them after your death. There are several ways to make that happen.
Arizona is a state that allows a Transfer-on-Death deed (TOD). With this document, you write a deed for real estate property to be transferred to a designated beneficiary when you die. You retain full rights and control over the property while you live, including the right to sell it. And if you change your mind, you can void the deed at any time. The benefit of a transfer-on-death deed is that it avoids the need for probate and saves your beneficiaries time and money. However, there could be several drawbacks to using this deed, one being the possibility of elder abuse (manipulation) in order to get a senior citizen to sign over their property. And getting title insurance on this type of deed could be a challenge because of the possibility of unpaid creditors’ claims against the property. In addition, filling out the legal documents for a TOD deed can be tricky. If not done correctly, the transfer of the property could be jeopardized.
Setting up a living trust is our usual pathway to handling your real estate properties and assets. A Living Trust can minimize taxes on your estate, while avoiding probate in the distribution of your property after you’ve passed away. When you create a revocable living trust, you transfer the title of your property into the trust, naming yourself as the trustee. You still control what happens to your estate and your property: you can sell it, mortgage it, or add more property to it. But the trust is the owner and you are its trustee. And as the trustee, you can revoke the trust at any time.
When you set it up, you’ll also want to name a Successor Trustee, that person who will step into the role of managing your assets and distributing your estate (according to your specified instructions) after you’ve passed away. Additionally, should you become physically or mentally incapacitated, the successor trustee would be able to step in and manage the trust on your behalf.
Living Trusts give you great flexibility in how to distribute your estate, and even when your estate is distributed. For example, your distributions could be held in trust until grandchildren come of age. And a living trust enables your trustee(s) to step in and take over immediate management of your rental properties and real estate investments: no court-ordered delay as with a will, and no probate expense.
If you’re a real estate owner, you may have debts when you die. If so, who will pay for them? Big ticket items such as mortgages, loans, and liens might not be paid off at the time of your passing, unless you’ve set in place a plan for their payoff. Having adequate insurance coverage is essential in order to ensure that your survivors are not burdened by these debts. Make sure that your car insurance, homeowner’s policy, and your disability and life insurances will take care of all outstanding debts; including any debts associated with your real estate assets.
Planning for the Unknown
Nobody knows the end point of their timeline, but wisdom plans well in advance for its certainty. Phelps LaClair has been serving the Phoenix Valley for two generations, and we’re here to help you plan for a successful transfer of your real estate and other financial assets. In our next blog post, we’ll look at Living Trusts, Living Wills, and Financial Powers of Attorney, and their connection to planning for the future. If you have questions about real estate and estate planning in the Phoenix Valley, we’ve got more than 40 years of experience in estate planning to help guide you in the right direction.